Ireland’s expertise in aircraft leasing ‘unrivalled’

In the niche but lucrative world of aircraft leasing the question isn't why establish in Ireland, but how could you not? Ireland invented the business, or at least, the late Tony Ryan did, in 1975, with Guinness Peat Aviation.

Today, up to 8,000 aircraft are owned and managed from Ireland, amounting to almost 40 per cent of the global fleet.

In the decades since GPA blazed the trail the degree of expertise in aircraft leasing that has grown up here is unrivalled. It has in turn spawned success in related areas such as airline management, and aircraft maintenance.

The result is that one of the best reasons for locating here today is the expertise Ireland can offer, and third-level education has an important, and growing, role to play in that.

“Expertise is a key part of what attracts aviation companies to Ireland, and that includes not just the aircraft leasing companies here but all the accountants, tax advisors and legal consultants we have who have expertise in the aviation industry, all a legacy of GPA,” says Tom Conlon, academic director for UCD’s MSc in Aviation Finance – the first post graduate degree of its kind in Europe.

“What is less well known is that we are also home to the international registry of aircraft, which is helpful if a lessor needs to repossesses an asset.”

And, while our corporation tax is attractive, it is by no means the primary driver, he maintains, not least because the tax codes in rivals such as Hong Kong and Singapore are more attractive. “But what we have in addition to our low corporation tax is a network of double taxation treaties that allows corporates pay less withholding tax up front. That’s near to if not top of the list of reasons for locating here,” he says.

We also have a write-off period of depreciation of eight years, which means that at the end of that relatively short period you will still have some intrinsic value left in your aircraft.

Underpinning all of this is a recognition here of the need to have a constant pipeline of talent coming into the industry. August saw UCD’s first crop of Aviation Finance graduates. All 25 are now working in the industry, he said. Both DCU and Carlow IT have undergraduate degrees in aviation management.

“The industry here is very conscious that in order to stay competitive we need a thoroughfare of staff to draw on,” says Conlon.

Some 60 per cent of UCD’s post graduate class this year came from overseas, mainly Asia. Ironically, if there is a threat to Ireland’s position as the primary hub for the aviation sector, it comes from Asia.

"During 2017 both Hong Kong and Singapore introduced changes to their tax code and Hong Kong in particular is very aggressively trying to attract airlines," says Angela Fleming, tax director at BDO Ireland.

“It slashed its corporation tax to 8.25 per cent and renegotiated its tax treaty with China, making it better than ours, which is something that would be hard for other locations to say.”

Such treaties dictate how much withholding tax a company must pay upfront. In Ireland the rate is 6 per cent , in Hong Kong it is 5 per cent “That may seem a small difference but when you are talking very high value deals, as you are in the aviation sector, it becomes very significant,” says Fleming.

ICBC Financial Leasing's delivery of a new Boeing aircraft to Korean airlines in December may be a straw on the wind in that respect, she says. It is the first aircraft leasing transaction to take advantage of Hong Kong's new tax benefits and, according to reports in the South China Morning Post, ICBC had initially intended to use Ireland as its leasing platform.

“There is a risk that Ireland could end up being the aircraft leasing hub for ‘rest of world’, while Hong Kong becomes the hub for the Asian region,” says Fleming.

That there would be strong cultural reasons for this adds to the concern, particularly as Asian air travel in general, and Chinese air travel in particular, is predicted to rise significantly in the years ahead.

“In our favour, our biggest competitive advantage is our pool of talent. That is very strong and I don’t see it changing.” Locations like Hong Kong and Singapore can’t develop that overnight, and the advent of courses such as UCD’s Masters in Aviation Management all help, she says.

“What I would really like to see however in tax terms, particularly as we compete on the basis of talent, is a change in our personal tax regime, which is really stringent and high. For international people who are mobile and have a choice about where they locate, having a really restrictive and high personal tax regime can be a factor in their decision making. This is something we really need to be mindful of.”

Tom Woods, head of aviation finance and leasing in KPMG Ireland, feels similarly. Ireland is still "very much the heart of the industry, the engine", he says. "After all, of the top five leasing companies in the world, four have originated from GPA."

However, while from a corporate tax point of view, Ireland scores well, “personal income tax is still an issue”, he says. “The Government has introduced measures to improve the attractiveness of personal tax code but the headline tax rates here are still very high. To ensure we keep ourselves really competitive, there’s more work to be done there.”